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How To Turn Your Hobby Into A Business

The pandemic has taught us the importance of resilience and adaptability. Profitable hobbies certainly exist, and it’s possible to turn them into something more than a hobby. Yes – seriously.

The pandemic continues to have far-reaching negative consequences on the economy and on the livelihood of millions of South Africans. Some very successful business owners and professionals have experienced setbacks in the face of rising living expenses and growing household debt. In fact, according to the South African Reserve Bank (SARB), South Africans are spending 75% of their take-home pay on debt (ouch) – but what exactly are South Africans borrowing money for? 

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Kerry King, advisory partner at wealth management experts Citadel, says that many South Africans have seen opportunity in the current economic landscape and hope to take their hobbies to the next level. Amazing, right? But, a word to the wise: while taking your hobby into the biz arena is an exciting shift, make sure you keep your financial “fundamentals” in place as you go through any career change.

1/ Paradigm shifts make way for opportunities

A recent Quarterly Labour Force Survey (QLFS) reported that between April 2020 and April 2021, the informal sector increased by 18% and now makes up 18% of the total employed workforce in South Africa, and some studies indicate that as many as 40% of middle-class South Africans have started some form of side biz to offer their services and products online.

“The rise of social media, particularly the role of Instagram, has greatly facilitated the process of getting products to market and all over the country there has been a notable rise in the number of markets which provide an outlet for small businesses to showcase and sell their products,” says Kerry.

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2/ Avoid financially overcommitting

One of the biggest temptations when starting a new venture is to take out a loan or use personal finances to fund your business… when that should actually be dedicated to covering essential living expenses. “Unless you have absolute certainty of the sustainability and growth potential of your new side venture into a formal business, this would be an unwise decision,” says Kerry.

With the failure rate of start-ups being notoriously high, King strongly advises against using retirement funds to start a business. According to recent statistics, only about 10% of start-up businesses succeeded in 2019. Research concludes that 21.5% of start-ups fail in the first year, 30% in the second year, 50% in the fifth year and 70% in their tenth year.

“If you intend to leave your formal employment and take cash out of your retirement fund, please consider the risk you are taking,” she says. “When cashing out, you are also forfeiting the opportunity to grow those funds through compound interest. Even if the business is successful in future and you decide to start a new retirement fund, you will likely be starting from scratch.”

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3/ Is selling an option?

In some cases, people have developed successful small businesses and now seek buyers. Kerry stresses that in such cases, it’s important for the business to be able to function completely independently of the owner, which will go a long way in maximising the valuation of the business. (We’re looking at you, control freaks.)

“We often see small businesses where the owner holds all the client relationships or is the expert in one particular aspect of the business, such as the production line. This doesn’t make it an attractive proposition, unless they’re prepared to stay in the business for an extended period.”

4/ Do your research before you make decisions

“Take an honest and realistic look at yourself, your resources, your capabilities and your market. Make a clear distinction between your retirement savings and capital available to start and grow your business,” says Kerry. 

While our country would significantly benefit from more successful entrepreneurs, it’s important that those individuals minimise start-up risks for themselves as much as possible, so they’re not left stranded should things not work out. Word.

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